When it comes to financial advice, there are some basic tenets that you’ve probably heard over and over — budget, save, and invest. All of those pieces of financial advice take time, dedication, and education.
Some people may be uncomfortable with investing because they've heard stories about people losing money in the stock market. Or perhaps they’ve lived through a few market downturns or just don’t know how to make smart money moves.
However, investing can be an important part of a financial plan. Here are some investments you might want to avoid and what you might want to consider instead.
According to the U.S. Securities and Exchange Commission (SEC), penny stocks are “low-priced shares of small companies.” Generally, penny stock shares trade for less than $5 and can be a risky investment.
Part of that is because the shares are usually for small companies that might not be stable and don't have access to a lot of money or resources. The other reason is that penny stocks can be difficult to sell once you own them.
If you want to invest in more reliable companies, you might want to choose the best brokerage account to do your research and buy shares.
Companies whose business you don’t understand
This one might sound obvious, but it’s usually a good idea to understand the company you’re investing in.
That doesn’t mean you need to know all the ins and outs of the product or service, but it does mean that you might want to understand the general premise of the company and how it works.
Promises that seem too good to be true
You might see advertisements for companies or individuals that promise a certain return on your investment.
It can be tempting to jump on board, but according to the SEC, guaranteed returns on investments don’t exist and provides a checklist of warning signs of investment fraud.
Buzzworthy stock making headlines
There’s often a news story about a stock that's exploding (or imploding). These stories are interesting to read and learn about, but that doesn’t mean you should invest in the company.
In fact, when a particular stock makes the headlines, it might be a sign that you should wait to invest in the company.
If you ever feel the urge to invest in a buzzy stock, give yourself permission to wait or consider other ways to boost your bank account instead.
Tips from family members or friends
This one can be tricky, but it’s not a good idea to blindly listen to other people’s investing advice — no matter how much you love them.
Do your own research instead. Maybe you’ll determine that the advice you received is right for you and follow it anyway. Or you might discard the tips altogether.
Either way, just because you care about someone doesn't mean you’re obligated to follow their financial advice.
Depending on the industry in which you work, it might be standard to own some company stock. In fact, some compensation packages even include shares of company stock.
When it comes to company stock, there’s nothing wrong with owning some. In fact, employees often feel passionate about the success of their company.
But you want to make sure that you’re not overexposed. If something happened to the company, you might lose your job and the value of the stock at the same time, which could make it difficult for you financially.
Cash is usually an important part of any savings plan. After all, emergencies pop up and job loss happens, so it’s nice to be prepared with a savings cushion.
However, if you’re keeping all your money in cash, you might be losing money due to inflation and rising costs. This might be especially true if you keep all your cash in a checking account.
Instead, choose one of the best high-yield savings accounts and make time to consult with a financial professional to review your asset allocation.
Companies with changeable leadership
If you feel passionate about a certain company, you might want to investigate the leadership. It’s good to review the company’s management and check if it's stable.
Internal leadership changes can change the structure and functionality of companies, so it’s worth your time to dig around.
Choosing how and where to invest your money is a deeply personal decision, and depends on your overall financial picture, goals, and tolerance for risk.
For those reasons, you need to make sure you make smart money moves based on your needs.
You may want to consult with professionals who can help you understand how certain investments work. After all, you worked hard for your money and you want it to work for you.
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